Bankers really are whiners aren’t they? This morning the FT reports the whinings of Oswald Grübel, CEO of UBS, one of the big, Swiss bail-out banks. Mr Grübel is described as a veteran whiner, sorry banker. And this morning he is whining about over-regulation and not being loved enough. He complains that, “Only behind closed doors do they [governments] pay lip service to wanting to keep the City.” He is having a little tantrum about the fact that Switzerland has said it will require banks to hold more capital against loans and is worried that London will do the same. He then moves from petulance to wormy threats, saying how if one place requires 19% capital holding but another only 8%, then business will naturally move to the less regulated place.
If this is what he is saying you know all the other bankers are saying the same and, more importantly, they are making the same threats to everyone, pushing hard for the bottom. Imagine what bankers like Mr Grübel are saying to, for example, Mr Enda Kenny. Ireland has no effective financial regulation to speak of. Not by accident but by policy. Imagine if Mr Kenny tried to introduce some. There would be chorus of Grübels all saying how they would leave and Ireland would sink.
As a group, bankers are working very hard to pit one jurisdiction against another, not to keep regulation as lax as it was, but to lower it. The argument is that we are in such desperate straits that in the competition for growth, the banks must not be hindered.
So I thought, to balance the whining about how unfair bank regulation is, it might be good to remind ourselves of what the banks already don’t have to tell us or do.
Banks do not have to value their assets in any verifiable or objective way. They value them according to models they themselves control. Regulators do not even have oversight of the models.
Banks, when they report their earnings, losses and taxes do not have to show the profits or losses of any subsidiaries. This means it is quite possible for a bank to show small losses and small exposure to future losses, simply because it has sold the losses to ‘another’ company. That company now has the loss and the exposure to future losses and the bank may even show a profit from the sale! This has actually been done an awful lot by many of the banks over the last few years.
What you end up with is a careful shuffling of assets from bank to subsidiary and back depending on the regulatory and accounting needs of the bank. The bank may want to keep assets on its own books valued at some inflated mark to model price, until some question or stress test appears, at which point it may prefer to ‘sell’ those assets, thus making them disappear. Away goes the asset and in comes some cash – and presto – lower liabilities and higher cash holdings. Which may all seem fair enough until you remember these are not ‘other’ companies, but are subsidiaries. Which means the bank is still, inreality, on the hook for the debts. But officially, what’s reported in the newspapers, the bank has ‘recovered’ and its liabilities are decreasing.
Banks do not have to list, register, declare or consolidate accounts from all their subsidiaries. And so they don’t.
Now add to this two other layers. The subsidiaries can be in the same country or financial jurisdiction but they don’t have to be. So for, example, a bank like Hypo Real Estate or Depfa, may be listed on the German exchange, but domiciled in Ireland. It may have a ‘separate’ funding bank listed and domiciled in the Isle of Man. This bank’s job is to issue bonds to raise cash. That cash is then available to the rest of the banking group. It may also have a securitizing specialist business in Luxembourg or London and a Holding Company registered in the Cayman Islands which oversees a myriad of independent Trusts, SIVs and Investment companies,
Now not one of these regulatory authorities has to, or ever would, pass any information to another jurisdiction. Which is of course the point. Banks are set up this way for many reasons, not least of which is not paying taxes. Banks, and other companies, with help from their banks, use the web of subsidiaries to move profits from high tax countries to low tax ones and to move debts and costs the other way.
So for example, if a German bank is doing a lot of work in high tax Germany it will pay lots of tax. If it does the work in Germany, but does the last little bit, closes the deal and books the profits, in Ireland, then it will pay low taxes. If on the other hand it should, perish the thought, make a large loss, in say….Ireland… it would be better off it it could ‘move’ that loss from Ireland to Germany, London or New York, where such pre-tax losses can in fact be counted against its German, British or American tax bill. This sort of arrangement is exactly what our government here in the UK is currently trying to put in place to facilitate this sort of tax arbitrage, as it is called.
Now this is with subsidiaries. We have not yet considered ‘other’ companies. I put it in quotes because what constitutes an ‘other’ company is a vague thing once you become a banker or accountant.
Let’s consider the companies which ALL the bailed out banks set up in 2005-07 to bundle -up, house and sell on the CDO’s they were creating. What we now know is that the ‘other’ companies which put the CDO’s together had quite often been set up with a large ‘loan’ from the same bank whose CDOs they would then ‘buy’ and sell on. Of course, it is what banks do – make loans, so companies can be set up. But when the company being set up is so closely tied to the bank making the loan and the business is so important to the operation and apparent solvency of the bank itself, at what point does such a loan arrangement constitute ownership or control?
In addition to which, once the CDOs were created, by the ‘other’ company, we also know that the banks then also set up, with their own money again, another company which ‘bought’ and housed the CDOs, that the first, ‘other’ company had put together, again, often using more loans from the same bank. So the bank would have provided all the money and loans for all the companies bundling and selling the CDOs and to the companies (Trusts) who eventaully bought them. Confused? That’s what the bankers hope.
Now all these various layers of ‘other’ companies, which are NOT subsidiaries, definitely do not have to be considered by either the bank or any regulator, when considering the health or otherwise of the bank itself. The only connection between them all is the loans the bank made to them all. And the health of those loans – are they good or toxic – is for the bank to decide. Handy isn’t it?
Now let’s add another layer for those of you still not confused and put off.
Let’s make sure these other companies, particularly the ones who are going to be actually holding the assets being sold by the banks, are not just separate companies, not just in different jurisdictions but make sure those different jurisdictions are all in off-shore jurisdictions that have ‘bank approved’ regulations and regulators – like Ireland or the Caymans or London for that matter.
So the bank has its subsidiary in the Isle of Man issue some debt. That raises cash which the Isle of Man bank can ‘lend’ to other subsidiary parts of the bank. It does so, and then the London or Frankfurt branch uses its contacts to set up some great deals. If necessary the deals can be closed in Ireland for tax purposes and any costs can be moved back to London or Frankfurt by having the Irish branch bill London or Frankfurt for some ‘consultancy’ work on the deal, leaving all the profits in Ireland and all the costs in London. Of course you don’t want to do this to every deal because you need to have enough profits to show in London to create your bonus pot so you can pay billions to you and your friends.
Now the resultant ‘assets’ created by all this frenzy of money movement, need to be housed somewhere. You have already got the profits where you want them. Now you need to make sure any risk of losses on those ‘assets’ is well away from the profits. The undoubted best place to house those CDOs (Collateralized Debt Obligations – just bundles of loans) and their risks, is off-shore. Set up a company, a trust is a good kind of company for this, which has no business other than to house the loans you sold it. It will sell the income from those loans to investors. Those investors will NOT be connected to the bank. They will be investors in the Trust ONLY. SO should anything go wrong with the Trust and its CDOs the bank will say, “Who me?”
If the Trust and its CDO goes bust you have no recourse to the bank. All you can do is try to prove that there was fraud by the bank or the company which chose and bundled the ‘assets’ when the Trust was set up in the first place. You will have to prove that the bankers knowlingly lied to you about the real value and riskiness of the assets. If you can’t do this then you’re stuffed. This is why we are seeing all the allegations and law suits claiming that the banks lied about the assets. But fraud is hard to prove. And who was the fraudster? The person who ran the CDO who should have looked more closely at what they were overseeing and selling? The people who chose and bundled them in the first place? Or the bank who created the loans in the first place? Lots of layers, lots of defendants all of whom will have lawyers. It’s called defence in depth.
Now, to return to the scene of the crimes – Trusts are a wonderful way of of loading”sacks of shit”on to other people, as a JP Morgan banker recently said. They are also a great way of hiding losses from regulators. If a bank has lots of worthless loans on its books there is nothing at all to stop it selling those loans to a completely separate company. A Trust,set up in an Off shore jurisdiction, could buy them couldn’t it? And being off shore, the regulator in London CANNOT find out who set up or who owns the Trust. The Paris branch of a bank could have set up such a company. The London regulator is not privy to that information. And there is no trace of a link from the London bank to the Trust. The London branch did not set up the Trust. The London bank and the London regulator can both say ‘honestly’ that all is fine, legal and above board.
What the London regulator sees is the bank making a profit from selling some assets to a Trust. The assets disappear from London’s radar. They have gone. What is left is the profit from the sale on the London bank’s books. A healthy bank!
The Trust now owns the rotting ‘assets’. So what happens as the trust goes bankrupt? Well nothing happens to London. Paris however has made an unwise loan, which if it was sensible, it will have securitized and sold to bag holders, sorry customers, as AAA rated investments which it aquired from a major and therefore reliable bank. Or it may have taken out insurance in which case the insurer is on the hook for the losses. If it did not do any of this, worry not, it will go to its government saying it has some more unforeseen write downs and ask for a bail out. Must protect those banks.
Of course it might be better if Paris in the mean time had moved the liability to somewhere where there is more panic and less oversight – Greece maybe? Surely we have a branch/subsidiary/ Trust down there? We do? Marvelous. Get them on the phone! The Greek bank can go to its government and ask them instead, and then its government, too broke to pay, can go to its people and tell them they have loans to pay off so some more cuts will have to be made and if this isn’t enough then they’ll just have to go to the ECB or the IMF or the tooth fairy for all that London care – remember them in the story, where it began – and say we might default if you can’t help us cover this loan. And the ECB will buy up the debt and the banks who started this and whose debts this is all about, will tut about levels of debt and suggest that nations and the ECB will have to cut back more on spending on some ‘non-essentials’ like ..schools or hospitals.
Meanwhile the bankers whine to their friends in the Press and threaten any government which even thinks of introducing a regulation or two. And yet the truth is that there is already NO effective regulation or oversight of banks. What there is, are gnat-like inconveniences which buzz around the places where the huge, shrouded machinery protrudes into the world of people and their governments for the purposes of being physically housed somewhere and for getting their hands on deposits and bail outs.
Those protrusions of the banking world are like the brass buttons on a policeman’s uniform. They are just the tips of a massive machine which exists elsewhere and whose bidding the policeman does. The truth is most of the money in the world is not under any national jurisdiction at all. It is not physically in any country. It is not subject to any nation’s laws nor those of any international body. Democracy has virtually no control over it at all. The banks print and control their own debt backed currency (that is what securities and derivatives amount to). And when, as has happend, the value of the bank’s currency implodes, they use our politicians to loot our currency to replace theirs. And then bill us the interest on the money we have loaned or given them.
There are no regulations which oversee money or the banks, once money is on the move. And keeping money on the move is what modern banking is about. It is an unregulated, extra territorial, global power for and by a global elite.
Good morning
another interesting take on the banks. I do in fact sense a wider awakening. Some stuff that seemed off limits 6 months in the mainstream press is making it into popular columns.
Here is a comment by 'Peason1' in the Guardian today on an article about the quality of economic reporting that caught my eye and would have caused me to be amused if it wasn't so uncomfortably close to the truth.
Peason1
"Unfortunately I think the sad truth is that no-one dares tell it like it is.
Here's tonight's analysis from Robert Peston :-
Well the banks have placed nosebleed level bets with money they didn't have and used leverage (that's placing £1000 bets with only a tenner) and they don't even know where those bets are because they've been chopped up and sold on multiple times. This means that another jolt like the sub-prime problem in the US could mean demands for more money than the banks are worth.
Meanwhile the deficit grows ever larger and if we try and reduce it we'll increase it because of all the taxes we won't collect and the social security payments necessary but if we don't try and reduce it the pound will sink causing inflation which will sink the economy.
Personal debt is still on a spike, as are house prices and any interest rate rise will cause a wave of defaults which will crush the banks.
If taxes are raised disposable income plummets which will sink companies producing products aimed at discretionary spending ie. most of them.
Attempts to extract more money from either the rich or the multinationals will fail due to the ease of global mobility and will have the added kicker ofthe latter taking loads of jobs abroad which means less income tax and a higher social security bill.
In short – creek, paddle. Sorry."
Just when I was thinking "Maybe Golem is losing it" when you have your Libya/Algeria, Dutch/Danish bank moments you come up with the most devastatingly simple analysis of what the banks are up to. I may frame this thought. However I will never ask you a question about geography ! Thank you , so much to ponder.
Another excellent post Golem!
In my head things are very simple:
Given we have national responsibility to underwrite the banks' liabilities (through bailouts, inflation and austerity), then we must exercise unilateral (national) discretion to monitor and regulate them. Anything other than this leaves us completely exposed to assymetric risk and rewards.
It is internationalised (private) profits and nationalised losses
Quite frankly we should call their bluff. I'd be quite happy to see them take their monstrous liabilities somewhere else. They may be threatening us with leaving our shores, but in reality they need us (i.e. Gvt as underwriters) more than we need them.
We can cut them off at the knees and stiil survive. Iceland proves this.
Thank you Golem, you are giving me & others the facts behind this horror story. Am I right in thinking that with business as usual, it's only a matter of time before it all happens again ? & nobody seems to be able, even if they wanted to, to be able to change the system to avert this. It seems to me that either through the blinkered eyes of rampant greed resulting in the unsustainablity of the present state of affairs being ignored, or there is a plan afoot to purposely bring states to their knees, run by lackey politicians with their own populations reduced to serfdom, all controlled by a mainly nameless untouchable Robber baron elite.
Unlike previous tyrannies this one is like a tumour that lives within the host, a cancerous growth that infects the system that we are reliant on for our survival. Perhaps because this disease has not been dealt with at an early enough stage, this will result in the host having to undergo major treatment, the revolutionary equivalent of chemo/radiotherapy & invasive surgery, in order for the host to survive.
Or maybe this is all bollocks, I am going mad, everything will turn out fine, & I'm letting my imagination get the best of me.
No Stevie,
You are right this will not all turn out fine. But Hawkeye has the point to remember. If they want to take their business elsewhere fine. But the liabilities go as well. Which means the banks will have to find a host country that is willing to take on the PRESENT bail outs and guarantees.
There is no such country. CALL THEIR BLUFF.
I disagree about the ease of 'calling their bluff'.
Iceland 'got away with it' because they were relatively small in international terms, however I think they will still have a price to pay.
The problem with banks is that, although the banks themselves are, in effect, just conduits and processing centres for money, they are also the circulatory system of the real economy.
The current situation has come about by a much larger process of globalisation. Globalised economic activity and capital movement has been the consequence of political changes and international agreements. We only accept Chinese goods because of agreements made by politicians. If we 'call their bluff' we will, in effect need to withdraw from this globalised/globalising economic system but this economic model is the only one in town at the moment.
What we might then find is that we are in conflict with many agreements and treaties as well as separated from global capital, which could amount to a slow or even fast death.
So while the attraction of putting the boot in to the Banks is great, there is probably no choice but to slowly and painfully rein in these forces with political action and eventually international agreement.
The issue may be that we will have to accept a lesser degree of trade, but even breathing such a thing will unleash furious political reactions by major players. Trade is all.
Essentially we revert to the internecine game of intricate politics, and international relations.
The problems is really very much bigger than the banks. It is a philosophical and 'whole species' problem connecting with technological changes and particularly communication.
I think the bankers will eventually get their come-uppance but it will have to wait a while. It will require patience.
In the meantime the main issue is to maintain the pressure on government and try to establish something like democracy.
Personally I favour fervent, passionate electoral agitation and a shattering of the labour/conservative pseudo-democracy by electing non- aligned people-even the joke candidates, if necessary.
It would create parliamentary mayhem but it would remain non-violent, and would create the intense political debate necessary to create new structures which are less available for manipulation by the big parties.
Murdofuckation of our democracy and culture is also gathering pace. One small thing we could all do, if you haven't already, is end any subscriptions to TV services provided by Sky. and never buy the Sun Times or NOW, and never fail to describe them as trash, if you get the chance.
It seems that consumer power and communication through channels such as this one is all that is being left to us. The parliamentary process is so degraded it has become a joke and offers no protection. likewise the MPs.
Still it might be enough. Bringing down Sky by consumer power would be a real blow towards establishing democratic process, and a very stark signal to our supine political classes.
"There are no regulations which oversee money or the banks once money is on the move. And keeping money on the move is what modern banking is about. It is an unregulated, extra territorial, global power for and by a global elite."
"It is internationalised (private) profits and nationalised losses"
Touché sirs!
So, when the banks make profits they are multinational financial colossus bestriding the world never quite standing here nor there?
Yet when they make losses they are your local branch national bank critical to the functioning of your country's affairs.
It has to make you laugh, or cry, no? Both?
"Why, BANKman, he doth bestride the narrow world
Like a Colossus; and we petty men
Walk under his huge legs, and peep about
To find ourselves dishonourable graves.
Men at some time are masters of their fates:
The fault, dear BrutusECONOMIST, is not in our stars,
But in ourselves, that we are underlings."
-Shakespeare's 'Julius Caesar'
MacPuddock
I have two questions:
1) Do we really need all that international trade? I'd rather have decent clothes made in England than the tat I get from China.
2) Given that certain levels of trade are neccessary, then why does international finance need to move more money around in one day, than the physical equivalent gets traded in a year?
As Golem's post explains, most of the current activity is regulatory and tax arbitrage, not faciliting REAL trade.
Ahimsa,
wonderful quote!
MacPuddock,
I agree with all teh avenues of protest you advocate. And I also agree with your assesment of banking being tied with a broader question of globalization. I think the present philospohy of gloablization has to be withdrawn from and shown for the disaster it is.
As for not being able to do this I take your caution but still think someone will have to do it and that we could and we would survive. If we can effectively oppose and move away from the current system in teh more gradual way you suggest then all well and good. But I think we may run out of time.
Great comments with much food for thought!
if a bank did want to move, it would have to satisfy the prospective host country that they were in fact solvent, and that means mark to market
the fact is that the banks really have no power at this moment in time, we should put the boot in cos in a few years time they will be solvent and they will have power again
Just a note on my experiences of globalisation within the giftware industry. I have worked as a designer/ sculptor for various giftware companies for 30 years. I spent the 1st 15 years working in Stoke-On-Trent, in what used to be called the Potteries. The major giftware/tableware manufacturers in Stoke gradually started to outsource their products, following the likes of the big American companies Franklin Mint etc. This was always put down to the cost of local labour being to high, but from what I saw, they were just very inefficiently run. Now these companies if they still exist, have only distribution staff & add virtually nothing to their community. The one exception in S-O-T that I know of is a company called Moorcroft, they decided to invest in design & carry on producing a quality product, they like some German china companies are now starting to sell to China.
I moved over to Ireland 15 years ago to work for a very small company, this was mainly due to the lack of commission work in the UK. It became a successful company selling worldwide & employing about 80 staff within a small town. The owner was doing very well, he had a beautiful 6 bedroomed house on 14 acres, it was a profitable company, well run. About 11 years ago this company started to import from China, the 1st excuse to lay off staff was 9/11. Now the company employs about 20 people & the owner has moved to the equivalent of a stately home.
95% of the giftware in Ireland is now outsourced, but it all carries the stamp " Made in Ireland " This situation was achieved mainly by the major crystal companies with brown envelopes given to members of the the Irish government.
I have spent the last 18mths trying to set up my own manufacturing business, it is either that or to try & get a job in a warehouse with B&Q or something similar. A product that costs me 9 euro to make I could import from China for about 5 dollars. This would double my profits & mean that I would only need to employ 20% of the staff, thus cutting my overhead. There is really no incentive for me not to do this, from Government or elsewhere.
When I am in a position to do so, I intend to try every means I can to expose this situation in Ireland, but if I drive by you in a top of the range Mercedes, you will know I have sold out. Well, I had better get back to work.
hi again
the questions
Well yes, I agree about making more stuff here, but we have lost a lot of the infrastructure and skills. Trying to re-introduce these abilities would be costly and laborious and very difficult for quite a while. I have a pair of shoes made in Scotland in the sixties that I remember buying in a shop in Kirkcaldy High Street. The quality of manufacture then was normal-hand-stitched and hand-finished 'veldtschoen', but this quality would cost about 300 pounds now and be classed as 'designer' and sold in very posh shops. I expect there are still a few niche market manufacturers in the UK , but you can see the problem-the mass market. We could contemplate this issue for a while it has interesting significance about ‘costs’ and ‘value’ but it would take a long time.
We just couldn't begin to return to those days quickly. I think it would probably take a decade or even more after making policy decisions. Manufacturing for mass markets requires a huge knowledge base. That has largely died in this country- you'd need to replace a whole material production and supply systems, that grew organically over many decades and was dismantled over a few years. (Things like tanning and dying and all the manufacturing techniques, not to mention the machine tools, and the suppliers of consumables for the machine tools and the maintenance and repair skills. It gets mind boggling. Even into issues such as the kinds of cow that provide the right kind of leather.
Apart from all these techno/mechanical problems-there are all the commercial and other market considerations. Could we set up companies that would have the design skills to make shoes for modern life? My old shoes were intended for walking in all weathers- not driving a car in. I am not sure how such a thing could be achieved easily. And compete realistically? Without huge protectionist import duties on Asian shoes? It is actually very disturbing how we have been stripped of skills and knowledge. Our 'usefulness' is seriously eroded.
We all read, and write, and know more , but not much that is valuable, or marketable.
Anyway not impossible, but a difficult transition and probably going to piss a lot of people off who are now highly invested and skilled in the current 'shoe market' systems. Not even going to think of the political battle it would unleash.
question 2: I think that is Golem's question. If I am reading rightly, the banking industry seems to have exploited the gap that opened up when the globalisation process really opened up. It developed complex computer facilitated financial products/instruments on the basis of difficult to trace capital and money movements that opened up as capital movement regulations were loosened off to facilitate globalised trade. I am not sure if politicians realised what they were unleashing- I suspect some did, and made a killing but I suspect the likes of Gordon Brown only thought he was on top of his brief. He is not the first to be out- flanked by events and technical process- but he played his role right up to the hilt and showed no due caution at all on something that I suspect was predictable, if with a little bit of humility. I think 'nulab' thought they were super- technocrats.
I think we should also remember computers. Technology isn't mentioned much but it is crucial. A lot of the bubble financial activity has been generated by the technological capacity of the computer and instant international communications and the speed that transactions can be carried out at.
I suspect the sheer laboriousness of paper systems were a great inhibitor in the past-never mind regulation.
Anyway don't know if that answers questions , but it is open to 'thoughts'
p.s did the 'golem' come from the Avram Davidson short story?
Damn- grammar correction:
I suspect the sheer laboriousness of paper systems was a great inhibitor in the past-never mind regulation.
The MacPuddock,
As you point out teh key here is protectionist tarrifs. They are regarded as an abomination. I don't thinnk they are. I know all teh text book reasons for saying prtectionsim is terrbile and frankly those arguments have more holes in them than a swiss cheese.
In the end we are giong to have to re-discover protectionsim and use it …to protect people. China did and does it. So did and does India. And that is amjor and unrecognized part of the reason both emerged strong whereas those who had equally cheap and abundant labour but swollowed the IMF/free market/globalization mantra are where they are now and not where China and India are.
rebecca
i saw a really good vid on the subject of rising oil prices making outsurceing uneconomic. bacicly oil at 120 means that hevery things like steel are cheaper to produce localy, as the price of oil goes up so are there more things that are cheaper to produce localy. i saw a thing on zerohedge some time ago about the cargo ships from china slowing down partly because the US is so messed up that thereis no buyers for chinese crap and partly to save on fuel costs
Hi, I've not read this post yet – but I thought that some of you might be interested in this article: http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?page=2
I think the core issue is globalisation. It was obvious quite long ago what was happening. I remember concerned discussions going on as long ago as 20 years about it, although it was largely related to the opening of the European markets, and then there was that strange and magic period of Nulab in the noughties when the cheap Chinese goods were suddenly everywhere, and money was coming in to buy them.
It was a bit like a sweetie shop suddenly opening up, with no barriers.
The political reality is that Labour, Con and lib dems are fully on board the globalisation project and will brook no other.
The Tony Blair 'education education education' mantra seemed to make sense, for a while (even if he failed to implement it very well) as it suggested that we would all re-train to do computer smart stuff or creative or thinking work, but to be honest, I am in the US at a University, and the Asian student intake is stupendous-and very smart and diligent indeed, for the most part. They are bi and tri-lingual (fluent) and doing advanced classes in all areas. They are every bit as good at the clever stuff as any others, and the sheer scale of numbers is daunting.
There was an article yesterday in the Guardian arguing that the globalised labour market was reaching further and further up the educational ladder and it does in fact seem inevitable that companies will start to outsource their 'smart' work too.
I think that is inevitable and the squeeze on wages is moving ever upward and onward.
I think we have had something of a language advantage, with the centre of the economic universe being in the English speaking US- but as the centre moves away to Asia we are seeing that advantage slipping away too. It is also worth remembering that India is very largely bi-lingual, with English routinely used. I.e. India is the largest concentration of English speaking, (although obviously not Anglo-Saxon culture.)
We also might contemplate that the biggest markets are moving to Asia as the economies develop and they won’t be needing the input of the west to cater for that and the west will of course be excluded for the most part.
We are going to need protectionism and tariffs I think, just to maintain some kind of independence, but that is a very difficult route to go down-for a start it is going to call for a very different politics to the kind we have now and to be honest I do not see any political figures with the qualities needed.
Something else that I see looming on the horizon, that is avoided at all cost is the Chinese resentment that still exists about the history of the 20th century when the country was colonized and grossly exploited and abused by westerners.
I doubt if there is overt expression of such a feeling but I don't think they have actually forgiven the humiliation and are looking forward to a little bit of economic retribution.
The other big issue is the climate change and how that will be resolved.
Personally I think it may provide the best chance of an economic recovery and may provide a springboard for an improvement in international relations if we can summon the resources to 're-tool' the world, but that is also a very demanding paradigm shift. The globalised world of competitive trading cannot tolerate such collective forms of thinking at the moment, as it implies quite a different way of doing things, but we need to resolve this matter soon.
The quality of financial reporting over the past decade or so can only be explained by several unpalatable storylines or a combo thereof.
Reporters are stupid.
By and large true, if they had any real brains and ambition in college, they would have gone into finance. There is your first clue as to how smart their life choices were. Being many days and many dollars short, they chose to cover the horses after they left the barns. Or maybe wrote pieces on "Ten Perky Ways to Keep Barn Doors locked".
Bad (corrupt) Leadership
Editors, bought and paid for, or cowering in fear for their jobs, assigned the dimmest pencils in their Journalistic Bull Pen to critical stories, then edited the drivel they got from their 'crack troops' into 100% Pure Spun Talking Points from On High.
Outright Censorship
Skip the subterfuge, the Word is out not to report anything critical about the Made Men of Finance or their criminal syndicates masquerading as 'banks'. 'Mafia Maggot Banks and the Men Who Run Them' will never be a headline in any publication, not even an asswipe rag like the NY Post (et al).
The term that comes to mind for what passes as main stream financial reporting is Press-titution. It's no different than what a $50 hooker delivers, and the hooker could probably write better to boot!
And the answer is = all of the above.
Stirred together in a witch's brew of FUBAR.
Any good financial reporting now is after the fact and essentially worthless.
They regulated after the Depression in the 30's and deregulated it all away after anyone with a living memory of how it had gone wrong was dead.
The global economy is now a Dead Parrot Walking.
The Press-titutes suddenly waking from the dead and expressing shock at the level of criminality in the Econosphere is like announcing that Doris Day wasn't as pure as driven snow after all.
Not everyone is surprised by this johnny come lately financial death bed conversion/revelation.
As Oscar Levant said, "I knew Doris before she was a virgin."
Gold star for MacPuddock for inventing the word Murdofuckation. 1 result (0.13 seconds)
Voting for anything but the norm should be the new norm. The norm doesn't work.
DOWN WITH NORM (whoever he is).
Imagine a cross between a Gorillaz music video cartoon, Tank Girl, Resident Evil. Myself in full Apache war dress and leather pimp jacket just emptying rounds of red debt bullets into hordes of zombies…
"Have it back murdofuckationers"
Hordes of them coming out of Deadmans Sachs gargantuan cloud scraper.
While I keep the zombies attention the action switches to the demolition team placing claw like bombs onto the building. In the sky are neutered regulator bugz, switch to flamethrower.
Demolition team on walkie talkie "Clear". In comes the chopper like a lawnmower into the zombies to pick up the demo team while I get onto a harley with 2ft wide wheels, hit the red button and the building and zombies vanish as the illusion nukes go off.
Sunset.
Make a great music video.
Interesting that you publish this now, presumably after some soul searching? The example set to those hitherto not in the know, means even less capital available to creditors. It will however hasten resolution, is morally neutral, so good for you?
This analysis does break down though. Cash flow falters as the market wises up and as capital falls. The effort becomes pointless and then they lose the bonuses. You are, after all, describing management divorced from owners? There is also the long term prize of solvency (my little joke!) or being able to dance with the music the longest. Curtains will fall and when that happens, the one who played the canniest not the greediest game will win the sad assets still in other bank hands.
Hello Fungus,
Interesting comment though somewhat veiled. Morally neutral – not sure how to take this. I do try, often not very successfullly to keep bias from getting in the way of just explaining. But otherwise I feel I am taking a rather straight and true moral line. I don't support the 'It's just business' line at all. I think we should judge things, people and actions on wheeather they are moral not wheather they are a legal. Business buys the law. It has not yet found a way to buy morality. Not from mew anyway.
But perhaps I have not quite understood your intent?
24K,
I can see it and I like it!
MacPudock,
Really interesting comments. Thank you.
Walk in the Woods,
I feel as you do about the state of journalism. We have been betrayed by yet another party.
Rebecca,
The point about the costs of transport is, I think, a critical one whose time is coming.
Good article!
The salient point for me is that little has been done to prevent "Credit Crunch II, the Monster returns". The media and politicians appear to have limited enthusiasm for educating themselves and tightening up ineffective tax and regulatory arbitrage. Systemic risk therefore, remains.
Perhaps they know that if the banks were forced to operate in a transparent manner with assets conservatively marked then many would be insolvent.
Morning Golem,
You've been remixed!
Thanks to Max "Headroom" Keiser:
The pre tax prophet remix
richard in norway said…
i saw a really good vid on the subject of rising oil prices making outsurceing uneconomic. bacicly oil at 120 means that hevery things like steel are cheaper to produce localy
Interesting thought there Richard. Could this be why Thai company SSI signed the deal to buy Tata Steel's Teesside Cast Products?.
http://www.bbc.co.uk/news/uk-england-tees-12579963
@The MacPuddock It is obvious to everyone now what the source of disenfranchisement is. The problem is how to address it. The financial crisis was presented in Ireland as an economic problem when it was in fact a social and political one. The crashed economy is the symptom not the cause. Our recent elections did actually elect a few of non-aligned (colourful) independents who will have no problem calling a spade a spade. Let's just hope parliament doesn't become a circus.
Ultimately everyone (and every entity should they try to remain faceless) is answerable to the law (Excalibur should be mandatory yearly viewing for all). Thus the making and enforcement of the correct laws by parties with the interests of the people at heart is the (democratic) solution. It's just unfortunate that we must all now become economics and international trade experts just to cast a vote.
Regarding the Chinese, you are spot on. I can tell you from personal experience that Chinese national pride is alive and well in Chinese people multiple generations removed from China. I don't have a problem with it – its a very strong culture – but they will probably maintain pissed off until they overdo it and end up owning the world (they already have Africa) and those students in the US will wake up unhappy at 50 and realise they have been a pawn in a game and were nothing more than an erudite slave and would have been happier if they had followed their heart and stayed with the drama group instead of taking on a PhD.
The Guardian article The MacPuddock references is here:
http://www.guardian.co.uk/commentisfree/2011/feb/28/education-jobs-middle-class-decline
Capital controls and trade tariffs seem to be the only alternative to the failed globalisation project (well, failed for 98% of the world's population). We need to engender a political class with the balls to get to grips with them.
R E G U L A T I O N ? ! ?
Oh yes, that's the thing where we, the tax payers, otherwise known as the suckers, pay the salaries of people to 'regulate' the banking business. It's a 'no worries, mate.' job, as when the banks fail, we, said suckers, pay to bail them out. It's a win-win situation.
Here is what the Governor of the Bank of England recently said:
KING – REGULATORS SHOULD ALLOW ORDERLY FAILURE OF BANKS
"The objective of supervision is to recognise that banks will fail. Our role is not to stop them failing, it is to make sure than if they fail, they do not contaminate the rest of the economic and financial sector."
KING – SHOULD NOT HAVE TO CONSULT WITH INDUSTRY ON NEW RULES
"At present, before any individual regulatory act can be made or changed, there has to be a detailed cos/benefit study in consulation with the industry. It makes no sense for the regulator to go through those steps, it should go through you. We shouldn't be accountable to industry itself. That was one of the things that had gone wrong."
"Our job is to make sure there are limits on how much risk is taken."
KING – NEED INTRUSIVE REGULATOR
"I do think one of the lessons is, that the kind of regulations needed to avoid something like a BCCI, which is to do with fraud, poor conduct — is the need to have an intrusive regulator looking at conduct issues and enforcement, that will go with the FCA.
"Prudential supervision is different. That is something I hope the new arrangement — a combinatin of the PRA and the new FPC, focussing on system-wide developments — will give us a better chance of dealing with these problems than last time.
"It's a big mistake to think we sholud have had twice as any regulators or twice as many rules …. that isn't the answer."
http://www.telegraph.co.uk/finance/economics/8354452/Highlights-of-Bank-of-England-testimony-to-MPs.html
Has anyone been held accountable for allowing the City to do as it pleases? NO. 'Fred the Shred' is a free man who just made some mistakes which you are all paying for. Likewise, here in Ireland, Patrick Neary, on whose watch as the Financial Regulator the banking system collapsed, was sent home with lots of money to play golf with.
I'm the fool for thinking that when Liquidity Regulations stipulated FIVE years in prison as a possible penalty for violating requirements, it meant something. Ireland's entire banking system ran dry of liquidity and is being artificially kept alive. Is anyone responsible? NO.
Even this cover-page article in Village magazine demanding answers from the new Financial Regulator regarding events at UniCredit has been met with silence:
Still waiting for the truth from the regulator
Regards,
WhistleblowerIRL
UniCredit Ireland's EX Risk-Manager
PS
On a slight tangent which is somewhat linked to Golem's previous posting, have you noticed who was there to say goodbye to the departing head of the LSE who only yesterday realised who Ghaddafi was? Peter Sutherland of Goldman Sachs – an organisation widely known for its moral standards:
"Peter Sutherland, chairman of the court of governors at the LSE, said Sir Howard's resignation was accepted "with great regret and reluctance" and that it was offered as "an honourable course in the best interests of the school".
Link to quote
Re China,
Does anyone remember the concluding lines of 'Empire of the Sun' – I can't remember them exactly but it was something to the effect that 'China will have her revenge' and I remember it scared the hell out of me when I was ten or eleven.
@24K : Who will be the first to register murdofuckation.com ?
Another great post Golem.
I was reading Treasure Island to my son last night –
"Money!" cried the squire. "Have you heard the story? What were these villains after but money? What do they care for but money? For what would they risk their rascal carcasses but money?"
Just about sums it up really.
There used to be a time when the elites cared about us because it would help them make money. They required a healthy, educated public to work for them – and they were prepared to pay for it through taxes and or philanthropism. The fact is that in this globalised economy, they don't care about any of that. Public health isn't a problem – they are not likely to die of TB or some other easily preventable poor disease. Education isn't something they need to pay for anymore – there will always be somewhere in the world they can get a cheap educated workforce from. They don't ever need to see a slum – unless their helicopters have to fly over one. They just need us to buy stuff and they can lend us money to do that. The elites used to be geographically tied to a country – this is no longer the case (ok – when the elites are also the government this is not the case – Mubarak or Gaddaffi spring to mind – they should have taken better care). Elites just don't need to care about us anymore and can spend their money on getting the MSM to brainwash the masses into thinking the same as them – the "I got rich because of hard work and talent argument" – nothing to do with society, so I don't owe society anything. Elites just don't need us anymore.
Why oh why can't more people see where this is heading – Why don't they care enough! Sorry to rant, but this really winds me up. How in fucks name can it be OK for one guy to control 50% of the media in a country.
actually I don't know much about registering( I assume domain names), but let me know and I might have a go.
That didn't take long…
Domain Name: murdofuckation.com
Registrar: REGISTER.COM, INC.
Whois Server: whois.register.com
Referral URL: http://www.register.com
Status: clientTransferProhibited
Expiration Date: 2012-03-04
Creation Date: 2011-03-04
Last Update Date: 2011-03-04
Wasn't me!
who.is suggests the following, for those who were too late
murdoscrewation.com – not bad
murdooffation.com
murdopairation.com
murdoscrewation.net
murdoshagation.com – good
murdoknowation.com
murdobedation.com – humm?
murdoshtupation.com – rolls of the tongue quite well
murdonookyation.com
murdonookieation.com
murdoloveation.com – Maybe not this one
Buy Now! $9.99 at name.com
Good Luck!
Wasn't me either 😛
Here's a great article on Common Law vs Statutes. Imagine if we all withdrew our consent. That would be a very Britsh revolution wouldn't it.
The other thing that would be great would be a world walk out. A monday at a time in the year that is agreeable for the whole world.
A Global Bank Holiday.
Murdomurdocation
A list of assets
Thanks for this Blog David.
I'm a lay person in such issues but the truth to me in all this mess is blindingly obvious – it's just so hard to make it simple when those in power seek to keep us in the dark. So here's my take – I hope others will correct me if I am mistaken:
1.) There was a bet between the banks (selling crap loans) and the hedge funds (betting against these loans)- in other words taking out 'insurance' against these loans going bad.
2.) The banks packaged these loans up into Investment Funds rated as Triple AAA by the rating agencies because the banks didn't need to disclose what types of loans were in the funds and so rigged the market for as long as they could – until the defaults on home loans started..
3.) Then the Banks couldn't afford to pay out on the bet they lost with the Hedge Funds. They were bankrupt.
4.) So our governments paid their debts for them by refloating them with our tax-payer money – followed switfly by Public Service cuts etc etc
Have I got this wrong people – because this is how I explained it to the cleaners at work after I told them the company wasn't giving them a cost of living rise and one of them was being made redundant.
Please correct me if I am mistaken
In other news
Mervyn King criticised high street banks for routinely exploiting their customers and urged them to take a longer-term approach to their business rather than simply trying to "maximise profits next week".
"We allowed a [banking] system to build up which contained the seeds of its own destruction," King has told the Daily Telegraph.
"We've not yet solved the 'too big to fail' or, as I prefer to call it, the 'too important to fail' problem. The concept of being too important to fail should have no place in a market economy.
"The problem is still there. The search for yield goes on. Imbalances are beginning to grow again."
King criticised the culture of short-term profits and bonuses in the banking system, suggesting that traditional manufacturing industries had a more "moral" way of operating.
"They care deeply about their workforce, about their customers and, above all, are proud of their products," he said.
"[With the banks] there isn't that sense of longer-term relationships. There's a different attitude towards customers. Small and medium firms really notice this: they miss the people they know.
"If it's possible [for financial services firms] to make money out of gullible or unsuspecting customers, particularly institutional customers, that is perfectly acceptable [to the banks]."
The governor argued that good businesses "keep a clear vision of who their customers are and are run by people who don't think they should simply maximise profits next week".
http://www.telegraph.co.uk/finance/economics/8362959/Mervyn-King-interview-We-prevented-a-Great-Depression…-but-people-have-the-right-to-be-angry.html
http://www.guardian.co.uk/business/2011/mar/05/mervyn-king-banks-exploiting-customers
hi Uncle
I took your advice and paid up the $8.95 to register the name.
Any advice about setting up the website?